Rex Lewis personally guaranteed five loans to develop real estate in Nevada. After the crash of 2008, the underlying debtors defaulted on the loans, and Lewis's guarantees were called. Eventually, this resulted in Lewis owing five judgments totaling over $66 million.
When Lewis gave his personal guarantees prior to 2008, he listed assets in excess of $100 million, but when Lewis went to his debtor's examination, he claimed (as all debtors do) that he was flat-busted broke. When creditors asked Lewis any transfers that he had made to his family or to trusts, etc., Lewis refused to answer.
Refusing to answer, of course, has its consequences, and the U.S. District Court for the District of Nevada threatened to hold Lewis in contempt if he did not answer and provide information about where his assets had gone. Eventually, Lewis's creditors obtained a goodly amount of information about Lewis's asset protection structure -- including a memo and outline of Lewis's asset protection structure drafted by his attorney, Ron Jenkins of Portland Maine doing business under the name of Meridian 361 International Law Group, PLLC, 2015. This Memo, which you can view here, which explained the planning to be done for Lewis, was drafted on August 7, 2008, i.e., when the Nevada real estate bust was in full swing, and so this is not a case where the debtor engaged in appropriate "clear skies" pre-claim asset protection planning, but just was good old defrauding creditors. But I digress.
Soon after the Jenkins memo, Lewis settled an asset protection trust in the Caribbean island-country of St. Vincent and the Grenadines ("SVG"), which is a notorious debtor haven. Like most offshore trusts, Lewis's trust in the SVG was chock-full of anti-creditor provisions, including a direction to the Trustee "to ignore any advice or any directive order or like decree . . . of any government, court, administrative body or any tribunal whatsoever . . .."
Lewis's SVG trust owned a company in the Isle of Man, named Woman LLC. Into Woman LLC went Lewis's investment portfolio and cash. Lewis's creditors were successful in having those assets frozen by the Isle of Man, and a disclosure made of Woman LLC's assets.
Woman LLC also owned interest in a variety of domestic LLCs, which held real estate in Nevada and Utah, assets which -- and this is very important -- are probably available to Lewis's creditors as they cut through his structure.
In 2011, another trust was created in the SVG called the "Six Kids Trust", which you can see here, with the beneficiaries of that trust being Lewis's six children. According to the U.S. District Court, Lewis's "offshore entities have begun to repatriate assets into Six Kids Trust".
The creditors moved for an injunction that required the defendants (Lewis and his domestic entities) to repatriate offshore assets to the U.S., what is known as a "Repatriation Order". This lead to the Opinion of the U.S. District Court which I shall now relate.
The Court held that the creditors were not entitled to an injunction against the Lewis and his entities, because they had not shown (yet) that they would suffer a loss that could not be prevented if they followed their other collection remedies. In other words, the Court told the creditors to the effect that "See if your other remedies end in the collection of the sought assets, and then come back to me."
The creditors cited to another famous Repatriation Order that was also, coincidentally, entered in the District of Nevada and affirmed by the U.S. Ninth Circuit Court of Appeals, being the Repatriation Order in the Anderson case a/k/a FTC v. Affordable Media LLC, 179 F.3d 1228 (9th Cir. 1999). However, the court noted that the creditor in that case, the Federal Trade Commission, obtained its injunction under the Federal Trade Commission Act, which gives the FTC a much lower burden of proof than is available to ordinary civil litigants.
The Court noted that in another offshore trust case, U.S. v. Grant, 2013 W.L. 1729380 (S.D.Fla., 2013), the court finally entered an injunction against the debtor to repatriate assets, but only after the creditor in that case (the IRS) "had exhausted all other legal recourse".
Instead, the Court pointed out that here the creditors had nothing like exhausted their other remedies, such as having a Receiver appointed for the debtor and his entities. On that basis, the Court denied the creditor's request for the Repatriation Order.
ANALYSIS
Let me first caveat this case by saying that what Lewis did was nothing like real asset protection planning, which is taking chips off the table when a person has no claims, but simply good old-fashion post-claim fraud on creditors. If Lewis had actually transferred his assets into a trust for his children, even into a plain-vanilla domestic estate planning trust, those assets would have been off-the-table for Lewis's creditors.
But what Lewis did was to use probably a substantial part of his assets to obtain financing for his companies, and then when the cards turned bad he tried to take those chips off the table. Again, this is classic fraud on creditors that has utterly nothing to do with bona fide asset protection planning.
Reading between the lines of the Court's opinion, always a dangerous thing to do, it seems to made an impression on the Judge that (1) Lewis has real estate holdings in Nevada and Utah which are available for collection, their offshore ownership notwithstanding; and (2) apparently some repatriation was going on already in connection with the assets of the Six Kids Trust.
Presumably, the creditors will now have a Receiver appointed who can unwind the companies that hold Lewis's properties in Nevada and Utah (which by now have possibly bounced back in value), and unwind the transfers to the Six Kids Trust, and then see if their judgments are satisfied or not. Once they have exhausted these remedies, the Court seems quite open to a reconsideration of the Repatriation Order if moneys are still owed.
However, it is a cautionary tale for creditors that, unless you are the FTC or SEC or suchlike, the courts don't necessarily hand out like candy an injunction requiring the repatriation of assets. Injunctions are by their very nature equitable in nature, and equity typically requires that a party completely exhaust their available legal remedies before resorting to an injunction.
Probably the more interesting case to watch will be as the creditor's continue to pursue Lewis, so stay tuned.
CITE AS
FDIC v. Lewis, 2016 WL 589666 (D.Nev., Feb. 10, 2016). Full Opinion at http://goo.gl/NgEb1I
This article at http://onforb.es/1WRTNSr
